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Why the Japanese Yen Could Not Appreciate against the US Dollar

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Jul. 5 2017, Updated 6:38 a.m. ET

Japanese yen continues to fall

The Japanese yen (FXY) was one of the few currencies that failed to appreciate against the US dollar (UUP) in the week ended June 30, 2017. The Japanese yen has depreciated against the US dollar by 0.98%, and the dollar-yen pair closed at 112.38 for the week ended June 30.

The reason for this depreciation in the yen (YCL) was the sudden surge in the other major G10 currencies. The yen (YCS) has depreciated ~3.1% against the euro (FXE) and ~3.4% against the British pound (FXB) during the week.

Japan is the only developed country that signals continued stimulus to its ailing economy. Its central bank’s measures to revive economic growth and inflation have been ineffective.

Last week’s hawkish turn of events by the Bank of England and the European Central Bank led to a sharp appreciation of their respective currencies against the yen.

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Speculators are adding additional short positions

According to the latest Commitment of Traders data through June 27, 2017, large speculators have increased the size of their short positions against the Japanese yen. The total net speculative positions stood at -61,350 contracts, indicating a short position. These positions represent the addition of 11,391 short contracts to the previous week.

Lower-than-expected retail sales growth, industrial production, and core CPI reported in the previous week added to the negative pressure on the yen.

Week ahead for the yen

On Japan’s economic calendar, the June Tankan Large Manufacturers Index is expected to increase from 11 to 14. The Tankan Large Non-Manufacturing Index is expected to increase from 20 to 23.

Apart from this data, June Markit/Nikkei Manufacturing PMI, consumer confidence, and auto sales reports are also due to be reported in the week ended July 7, 2017. The dollar-yen pair is likely to reach 111.00–113.00 in the near term.

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